How does high deductible health insurance work?
WE A NSWER:
A high deductible health plan (also known as an HDHP ) means exactly how it's named: you will have to shell out a high annual deductible before the insurance will start paying for your treatments.
The deductible for 2010 are $1,200 for single plans and $2,400 for family plans. These will be adjusted yearly to account for inflation.
This means that if you have a deductible of $2,500, then if you have medical claims amounting to $1,000, the insurance will not be paying. You will pay this out-of-pocket. Now, if your medical claims during the policy year reach $6,000, then you will be paying $2,500 out-of-pocket, while the insurance will pay the rest - $3,500, subject to additional copayments. Please remember that the deductible may or may not be met during the policy year.
The advantage of having an HDHP is that you will be paying lower premiums and will also be eligible to have a health savings account. An HSA allows you to save up pre-tax dollars for out-of-pocket expenses. HSAs can be useful in getting substantial tax savings.
What it comes down to is that an HDHP will cover "catastrophic" events, events that have high medical costs.
In the meantime, you will be responsible for medical costs that are routine or minor. Once your deductible is met, you can be assured that the rest of your medical expenses are covered by your insurance.
The disadvantage of an HDHP is that if you only have a small claim within a policy year, you won't get to use your insurance at all.
An HDHP works best for those who live healthy lifestyles - who exercise regularly, don't smoke, eat the right kinds of food, who don't have a chronic disorder or disease and don't have any addictions.
When you have an HDHP, you can pair this with a Health Savings Account (HSA). The HSA allows you to "save up" money into an account which you can later use to pay for the deductibles and other out-of-pocket expenses. If you have a medical expense, you can pay for this with pre-tax dollars and still deduct the expense from your income. Using your Health Savings Account with High Deductible Health Plan, you can enjoy considerable tax savings since any contributions to your health savings account will be deducted from your income before your taxes are computed.
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